Assessing Indonesia's Economic Prospects for 2026 Amid Widespread Pressures
Indonesia’s economy, to date, remains in a hesitant, stumbling phase. Like the progression from crawling to walking to running, it requires strength from within.
While neighbouring countries have started to move from walking to running—Vietnam, Malaysia, Thailand, and Singapore—Indonesia still lags behind.
At the end of 2025, life for many remained difficult as economic policy had not yet succeeded in raising welfare, reducing unemployment, improving per-capita income, and private sector industries still lagged in absorbing labour and boosting productivity.
Our 2024 forecast for Indonesia’s 2025 economy, predicting growth of 4-5%, proved that a number of challenges to improving the quality of the economy could not be realised for the general welfare. Accordingly, Indonesia’s economy in 2026 is projected to remain stagnant and could even fall from the previous year if the economic policies of 2025 are not corrected properly.
Evaluation of Indonesia’s Economy 2025
Indonesia’s economy in 2025 was not a cause for broad optimism. The public sought optimal job absorption, higher-quality per-capita income, improvements in education levels, and development of infrastructure, yet these remained far from expectations.
The persistently high youth unemployment rate (16.89%) dominated the total open unemployment and will make it harder to seize the demographic dividend to the fullest. In addition, regional minimum wage setting was biased toward needs, effectively allowing a patch-up approach.
Finally, at the end of 2025, several provinces—Aceh, North Sumatra, and West Sumatra—experienced floods and landslides causing large material and non-material losses with a slow rehabilitation by the state, indicating that economic and social development has not been pursued seriously by the state on behalf of the people.
National Economic Challenges 2025
A range of economic challenges over the past year remain, including low-quality labour and livelihoods, persistent corruption from central to local levels, and the poor quality of public education, representing serious obstacles to ongoing economic development.
Indonesia remains grappling with a number of housing problems not resolved, so the economy in 2026 remains stagnant according to empirical data to date.
First, the weak quality of the domestic workforce directly affects productivity and competitiveness of domestic industry. A mismatch between business needs and graduates’ competencies means growth does not translate into high-quality job creation.
Second, governance and corruption—still widespread at central and local levels—continues to erode public spending effectiveness and widen the fiscal deficit. The budget, which should act as a productive stimulus and drive growth, loses momentum due to leakage, red tape, and weak accountability. Until these two issues are addressed seriously, various national priority development programmes risk producing only pseudo growth without real welfare improvements (the trickle-up effect).
National Economic Projection 2026
Indonesia’s economy in 2026 is projected to remain under pressure from fiscal and monetary factors. Firstly, fiscally, the government’s priority programmes are not optimal and continue to burden state finances.
The Free Nutritious Food Programme (MBG) drains state finances amid field controversies such as mass food poisoning in several schools and regions. The MBG programme is substantively good, but the problem lies in its design and prioritisation. If MBG is continued, it should be prioritised in the 3T areas (teritorial) that are most in need of better nutrition. If kept, the fiscal deficit will widen further as tax revenue declines in 2025 and 2026.
Secondly, macroeconomically, geopolitics are heating up, raising uncertainty and dampening foreign investment. The IHSG crash recently showed that the domestic economy remains highly dependent on foreign capital flows. Therefore, the government must ensure domestic stability through improving the quality of the workforce, improving the business and investment climate, and improving governance of state finances.
From a monetary perspective, Bank Indonesia’s independence remains suboptimal. The issue of BI’s independence could undermine the credibility of the monetary authority and send negative signals to markets. The government should strengthen the central bank’s independence by not influencing its policies so that the national economy remains more stable and inflation stays in line with expectations.
Way Forward
2026 is a particularly challenging year for Indonesia, both in resolving domestic issues and in facing the globally uncertain external environment. Several forward-looking steps must be taken by the government to ensure the national economy remains on track with the RPJMN.
Firstly, the government must create more and better-quality jobs to boost the competitiveness of the skilled workforce and thereby raise national GDP. The measures that could be implemented promptly include: